Accounting Corner

By: CohnReznick LLPIn the restaurant industry, success depends on a strong brand concept that is successfully executed, tightly managed for profitability, and delivers a consistent customer experience. The challenge facing the leaders of food and beverage operations is how to successfully align leadership, management, and staff in accomplishing these objectives. In our experience, the most successful organizations have maintained competitive advantage and realized profitable revenue growth by establishing core values that help everyone make decisions that best support the brand.

Core values are the building blocks of a company. They support the vision, shape the culture, and reflect the company’s philosophy. They are the foundational beliefs that are deeply held and upon which the organization bases the substance of how its employees and the company as a whole perform daily. They are held so strongly that changing landscapes, economic downturns, and even profit opportunities will not cause an organization to forsake its core values. Truly great organizations double-down on their beliefs, using their core values as a source of strength to help power them through even the most difficult situations. Not all businesses have them, but all can develop them.

Developing Core ValuesHow are core values developed? It takes an organization time, focus, and deep introspection to define what is most important. Start with a clear and concise mission statement. A mission statement exemplifies what the business does, how it does it, and what it believes in. The mission statement provides clarity on why you want to exist in the first place, who you exist to provide a service or product to, and how you want to provide those goods or services. Starbucks has a great one-sentence mission statement: “Our mission: to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.” Simple, concise, and absolutely clear, their mission statement provides a strong foundation against which to align core values.

Use your mission statement to align all stakeholders with regards to what behaviors the organization must incent in order to achieve the mission and what values will drive those behaviors. The core values of all stakeholders must align either by design or by default. When you start this process you may find that all team members – from ownership to employees to vendors – are intrinsically united in a certain value proposition, creative edge, or simply good feelings engendered by the founder or leader. In these instances, the goal is simply to document these values. More often, leadership chooses the core values they deem necessary to mold the organization they want, according to the philosophy they believe in. They build the train, and their core values dictate who rides with them.

Core Values in PracticeCreating core values is only the start. Effectively implementing them is significantly more challenging. Benefits are gained from establishing core values only if they are communicated, oriented, trained, and used throughout the organization. As guiding principles they offer no value if management doesn’t stand behind the words. They must be lived by the leaders of the organization. This begins with management communicating core values to every employee of the business, at every level, and continues by having them integrated into the hiring process, training, on-the-job mentoring, and performance evaluations. Decisions that deviate from the direction provided by the core values are rapidly addressed by management directly with the employee in order to re-establish alignment to core values.

Case Study: Developing and Implementing Core ValuesA high-profile restaurant in New York City has experienced tremendous growth since opening 20 years ago, credited largely to the owner having adopted and implemented a set of five core values from the restaurant’s very inception. Dubbed “Enlightened Hospitality,” these core values have acted as guide posts, keeping the team operating within the organization framework outlined for the business:

Caring for each other

Caring for our guests

Caring for our community

Caring for our suppliers

Caring for our bottom line

Every key decision is vetted against these five tenets. For example, caring for employees, guests, and the bottom line led the restaurant’s founder to conclude that management must live within walking distance to the restaurant. Over the course of the business, the owner has turned down potentially lucrative opportunities in which management proximity to the new venture would not have been possible. But every restaurant he opened with these values thrived and resulted in extremely strong brands.

Identifying and Monitoring Gaps in Core Value ImplementationAs industry experts, we are often retained by operators to address specific problems. Recently we were engaged by a very high-profile, high-volume hotel to help them determine why they were showing no profit despite astronomical food and beverage sales. We interviewed every manager within the hotel’s food and beverage department, key personnel in different departments, and corporate leaders. Some issues were easy to identify; poor budgeting and overstaffing were causing higher than necessary labor costs, lack of integration between outlets, and high food costs. While these issues were attacked directly, it also became clear that corporate leadership had not aligned all management and staff toward accomplishing common goals.

Telling signs of a lack of core values can be seen by examining and questioning small details such as whether there are enough glasses available for a bartender to prepare a drink, the overall maintenance and appearance of the restaurant, and the mood level of the staff. In this example, conversations with employees revealed the absence of teamwork (from management through staff) and muddled feedback on how they best impact the customer experience further indicated something else was amiss. After addressing the immediate operational improvement issues, we helped management implement a core value system that, if successfully implemented, ensures the previous problems will not reoccur.

A successful implementation, however, requires leadership commitment. In another recent engagement we helped a floundering chain of restaurants renovate their facilities, enhance their menu, and rebrand their business. We developed a mission statement and core values, built employee manuals, and successfully relaunched the concept. Unfortunately, leadership didn’t live up to the core values they espoused. As a result, management and the best employees felt betrayed and left, vendors who should have been partners in the success of the concept became adversaries, and, to no one’s surprise, after a brief recovery, the business is again in trouble.

While nothing can correct a lack of leadership commitment to core values, this lesson does provide a cautionary tale as to the importance of monitoring the process. Placing “champions” in each area of the business helps ensure that if a particular area is operating outside of the core value framework, leadership can react quickly to resolve the issue. Strong management training is essential, but so too is having regular discussions amongst management regarding adherence to values and how exceptions were handled.

A Solid Start to SuccessThe first quarter of this year will bring a new business venture to Brooklyn, New York, one in which the owners –against insurmountable odds – are chasing their dream. The owners have managed to take over a huge industrial space, raise money, hire management and staff, and engender trust with their contractor, despite dealing with cost overruns, monetary shortfalls, and a concept based on a sport that most people only think about when on cruise ships.

How have they done this? Both founders are clearly aligned on their goals, focused on providing the best experience they can, and on driving revenue within their respective areas of expertise. Like most driven visionaries, they disagree quite often. However, their deep-rooted alignment on core values allows them to facilitate the correct decisions – a solid model that has positioned the most successful organizations in the food and beverage industry and beyond.